Beware the Fine Print

Financial journalist Constance Gustke, a contributor to CNBC, CBS Moneywatch, the BBC, and Bankrate.com, has written about the gold in Fort Knox, Bitcoins, nanotechnology, and a host of other subjects.

Gustke’s upbringing in Battle Creek, Michigan, prepared her well for her career. “My mother was an English teacher, and my father owned a store,” she says. “My mother got me into reading really early. My grandfather taught me what stocks were and took me to a stockbroker when I was a kid. I learned about finances, saving money, and all that. I just grew up with it.”

Not everyone, however, grew up with the tutelage of a financially literate grandfather. In fact, for most of us, being presented with a financial contract can be a baffling experience. Few people take the time to read the terms of the contract, written as they often are in tiny typeface. However, Gustke says you must still read the fine print of car loans, mortgages, bank accounts, cell phone agreements, credit cards, and other contracts if you don’t want to end up with a bad deal.

And now for the fine print: There is also a free barbecue dinner before the seminar, and attendees can register to win a $50 gift card. Students who attend will receive a free $15 gift card.

With big purchases, the terms of a contract are not always so friendly. “In any kind of big transaction, you want to really scrutinize the contracts. Sometimes, financial institutions or car companies, whenever they run promotions, usually those promotions come with some kind of caveat. You may think you’re getting a deal, but they may hike up the interest rate in a different way,” she says.

For example, a bank may offer you a $100 deposit for opening an account, but then require you to maintain a larger than expected balance in the account. The only way a consumer would know about that would be to read the fine print of the contract before signing it.

In general, Gustke says, if something looks too good to be true, it probably is — despite what the banner ad on a website may say, there is no such thing as a free iPad. Consumers should read contracts with an eye towards interest rates and fees. “Those are the most important terms to really understand,” she says. “That’s really what could eat up your money over time.”

Some financial products are more likely to have extra fees than others.While banking and credit unions are regulated by the federal government, and are part of the established banking system with all its red tape, prepaid credit cards are still virtually unregulated.

“With anything that isn’t regulated, abuses can occur,” Gustke says. “Prepaid credit cards are one of those areas. There are really not many consumer protections, unlike a lot of other things, because it is a new product. Prepaid cards have all kinds of fees that you wouldn’t normally see with banks or financial institutions and are rife with the most fee abuses.”

Prepaid cards can charge monthly fees just to use the card, fees to reload the card with cash, and even fees to talk to a customer service representative. Justin Bieber offers a prepaid card, targeted at children, that is loaded with such fees. Gustke recommends getting a simple prepaid card, if you must get one. She says Wal-Mart offers a fairly basic card.

It’s not just prepaid credit cards that consumers have to watch out for. Gustke says even normal bank accounts can come with hidden fees that can be a nasty surprise for consumers. Some banks charge fees for things like “inactivity” or for talking to a teller. Gustke recommends avoiding opening accounts with banks that charge a lot of fees.

If you do end up blindsided by a fee you don’t want to pay, you aren’t necessarily out of luck. “You can go into a bank or a credit union and go to the manager,” Gustke says. “They have a certain amount of money for fee waivers every year. Go to the manager and ask them to waive the fee, and there’s a good chance they’ll do it.”

Gustke says this is an advantage of banking with a smaller, local institution. You are not working with a bureaucracy, and there is a better chance the manager actually knows who you are. “Big banks have a hierarchy, so it’s harder to get a break on interest rates and that sort of thing,” she says.

So what should you do if you see terms in a contract that raise a red flag? “If you find abusive terms in a contract, you should walk away,” she says. “There are so many different alternatives these days.”

A Russian man named Dmitry Argarkov made the news earlier this year for doing just the opposite. He made a few modifications to his credit card application, giving himself 0 percent interest, no fees, and no credit limit, and was approved by the company because it didn’t read his fine print. However, such a stunt might not fly in the U.S.

Despite being called “contracts,” most standard contracts provided by institutions are not negotiated with the consumer. Gustke doesn’t recommend writing in changes to a standard contract in an effort to get a better deal. It’s much easier to find better terms somewhere else, she says.

Another area where banking consumers should be wary is with the financial health of their institution. While small banks and credit unions may, in general, offer better customer service, there is a chance they may not be financially healthy.

While the FDIC insures deposits up to $250,000, and you will never end up in a bank run scene as depicted in “Its’ a Wonderful Life,” Gustke says it can take months to be reimbursed if your bank fails. In the meantime, you have to switch banks. And it’s not just banks that can fail.

“A lot of people don’t know that credit unions can fail just like banks,” she says. “It’s worth checking out how your bank or credit union is rated.” Websites like bankrate.com and mybanktracker.com both offer impartial ratings of financial institutions. Smaller banks, she says, are especially worth checking out. “Smaller banks and community banks went through the worst time after 2008 because they didn’t have access to the capital that the regionals had. Some believe community bank ranks are going to thin out over the years, so it’s really important to know how your bank is rated.”

Gustke says she generally recommends going with a credit union over a community bank because they tend to offer better customer service and better deals.

Another area where a consumer might do well to read the fine print is with warranties, especially those that come with expensive electronics. Gustke says these contracts are unregulated, and that retailers can write whatever they want into a warranty, privacy policy, or other agreement.

Gustke will also discuss privacy and data security in her talk. The fact that McGraw-Hill is offering this seminar, Gustke says, is one reason to prefer credit unions over banks. “One of the things credit unions are strong at doing is presenting financial information to consumers without charge, and that’s a way to bring people together and educate people about finance. A lot of people don’t understand it, and it’s becoming more and more complex over time.”